1 Gross Domestic Product (GDP)

1.1 Real and Nominal GDP

  • Enter into the World Bank’s Human Development Indicators database using the link:

<https://databank.worldbank.org/source/world-development-indicators>

  • In Country select Argentina
  • In Series select GDP (current LCU)
  • In Time select VIEW RECENT YEARS: 50
  • Apply changes and download the data using Download options > Excel at the upper right corner of the platform
  1. Make a plot of the Nominal GDP of Argentina where the x-axis corresponds to the years and y-axis corresponds to the value of the Nominal GDP. (4 points)
  1. Explain why Nominal GDP is not a good measure of the aggregate production for Argentina. (4 points)

The Nominal GDP captures the variation in quantities and prices related to production of Argentina in monetary terms. Therefore it is difficult to identify what is really increasing or decreasing. A better metric to measure final production in Argentina would be the Real GDP which tries to eliminate the effect that prices have on production to examine the increase or decrease in quantities.

  • In Country select Argentina
  • In Series select GDP (constant LCU)
  • In Time select VIEW RECENT YEARS: 50
  • Apply changes and download the data using Download options > Excel at the upper right corner of the platform
  1. Make a plot of the Nominal GDP and the Real Nominal GDP of Argentina where the x-axis corresponds to the years and y-axis corresponds to the values of the Nominal GDP and Real GDP. (4 points)
  1. Explain why Real GDP is a better measure of the aggregate production than Nominal GDP for Argentina. (4 points)

Real GDP is a better measure of the aggregate production than Nominal GDP because it tries to control for the effect that prices have on production (measure in monetary terms). In the case of Argentina the Nominal GDP increased during the last years of the plot but it is mainly because of a persistent increase in prices.

  1. Explain why Real GDP and Nominal GDP have the same value in one year. (4 points)

Real GDP and Nominal GDP have the same value in the year 2004 because this is the base year that was used to calculate the Real GDP for Argentina. This can be seen in the previous plot.

  • In Country select Argentina
  • In Series select Population, total
  • In Time select VIEW RECENT YEARS: 50
  • Apply changes and download the data using Download options > Excel at the upper right corner of the platform
  1. Calculate Real GDP per-capita for Argentina. (4 points)
  1. Explain why Real GDP per-capita is a better measure for the production than Real GDP for Argentina (4 points)

Real GDP per-capita is a better measure for the production than Real GDP because it controls for the population. Making a population adjustment is important because production can increase simply because there are more people. In territories where there are more people, more production is expected but not because they are more productive but because there is more workforce. Therefore it is better to use per-capita data.

  1. Plot the growth of the Real GDP per-capita for Argentina. (4 points)

2 Inflation

  1. Calculate the GDP Deflator using the information collected in the previous section. (4 points)
  1. Calculate the annual inflation for Argentina using the GDP Deflator. (4 points)
  1. Make a plot of the inflation where the x-axis corresponds to the years and y-axis corresponds to the values of the inflation. (4 points)
  1. Describe what you see in the plot and point out why is important for a company in a country to have an economic macroenvironment with a low and stable inflation rate. Hint: Review the videos found in Primer corte 30% > Learning Resources > Links of interest. (6 points)

Based on the information available, Argentina has had periods of persistent price increases where for this period the highest inflation rate is presented in the year 1989. For a company in a country it is important to have an economic macroenvironment with a low and stable inflation rate because: